US Equity Strategy_January 2025Market Review & Outlook

Summary of US Equity Strategy - January 2025 Industry Overview - The report focuses on the US equity market, particularly the performance and outlook of major technology companies, referred to as "Big 6 TECH+" which includes Nvidia, Amazon, Tesla, Meta, Alphabet, Microsoft, and Apple [19][22]. Key Points and Arguments Market Performance - The S&P 500 index has shown a total return of 23.3% in 2024, with a significant recovery since the lows in October 2022 [4][19]. - The "Big 6 TECH+" companies have outperformed the broader market, achieving a total return of 143.2% since October 2022 [19][22]. Economic Indicators - The consensus forecast for nominal GDP growth in 2024 is around 2.8% to 3.2%, indicating a stable economic environment [12][14]. - Interest rates are expected to remain a critical factor, with the 10-year Treasury yield and high-yield (HY) spreads being closely monitored [9][49]. Earnings Growth - The consensus EPS growth for the S&P 500 in 2025 is projected at 20.8%, with the "Big 6" expected to contribute significantly to this growth [40][41]. - EPS revisions for "Big 6 TECH+" show a positive trend, with Nvidia and Amazon leading with 3.0% and 11.0% increases in 2024 estimates, respectively [35][32]. Valuation Metrics - The current P/E ratio for "Big 6 TECH+" stands at 29.2, compared to the S&P 500 ex-Big 6 at 19.1, indicating a premium valuation for tech stocks [36]. - The report highlights the importance of free cash flow (FCF) as a percentage of sales, with "Big 6 TECH+" showing strong performance in this area [46]. Market Sentiment and Risks - There is a noted concern regarding potential recessionary pressures, with futures implying Fed cuts expected in the near term [15][17]. - The report emphasizes the need for investors to remain cautious, as market conditions can change rapidly due to economic shifts and interest rate adjustments [54]. Additional Important Insights - The "Big 6" companies represent a significant portion of the S&P 500 market cap, accounting for 31.2% [20][22]. - The report discusses the implications of valuation methods and the potential risks associated with high valuations in the tech sector [54][87]. This summary encapsulates the critical insights from the US Equity Strategy report, providing a comprehensive overview of the current market landscape and future outlook for investors.